Term
Members in Business
Members in business are members who:
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Definition
are “employed or engaged on a contractual or volunteer basis in an executive, staff, governance, advisory, or administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector and regulatory or professional bodies.”
This would include staff accountants, internal auditors, and other accountants not engaged in public practice.
Members in business do not have to worry about independence rules. They have other responsibilities that generally mirror those of members in public practice, so it should not take long to master their part of the Code of Professional Conduct. |
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Term
Members in Business
The Conceptual Framework for members in business generally tracks that of members in public practice. Six of the seven threats identified for members in public practice also apply to members in business: |
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Definition
(a) adverse interest threats,
(b) advocacy threats,
(c) familiarity threats,
(d) self-interest threats,
(e) self-review threats, and
(f) undue influence threats. The examples given differ, naturally, because of the difference in work setting. |
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Term
Members in Business
Examples of adverse interest threats include: |
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Definition
- A member in business's close relative is an investor in her employer's closest competitor.
- A member in business has sued her employer.
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Term
Members in Business
Examples of advocacy threats include: |
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Definition
- Obtaining favorable financing is dependent on the information that the member in business includes in a prospectus.
- The member in business gives or fails to give information that he knows will unduly influence the conclusions reached by a third party.
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Term
Members in Business
Examples of familiarity threats include: |
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Definition
- A member in business has a long relationship with a third party and therefore stops reviewing the quality of the third-party's work.
- A member in business hires a relative as a subordinate.
- A member in business regularly accepts gifts or entertainment from a firm that sells goods or services to the member's employer.
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Term
Members in Business
Self-interest threats include: |
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Definition
- A member in business's close relative owns stock in the employer.
- A member in business is eligible for a performance-related bonus, and its value will be directly affected by the member in business's decisions.
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Term
Members in Business
Self-review threats include: |
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Definition
- An internal auditor accepts work that she previously performed before she was promoted to her current position.
- A member in business accepts work that she previously performed that will be the basis for providing another professional service—for example, Sally gives tax advice to her client and later, while doing attest work for the client, automatically accepts the validity of the tax advice.
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Term
Members in Business
Undue influence threats include members in business being pressured to
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Definition
- Become associated with misleading information
- Deviate from company policy, or
- Change a conclusion regarding a tax or accounting position.
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Term
Members in Business
When attempting to eliminate these threats or reduce them to an acceptable level, members in business cannot turn to safeguards generated by their accounting firm, of course, but can turn to those created by: |
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Definition
- The profession, legislation, or regulation, or
- Their employer.
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Term
Members in Business
Integrity and Objectivity
Offering or Accepting Gifts or Entertainment: |
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Definition
| Members in business should not accept any gifts or entertainment that would violate the law or the policies of other firms of their own employer. Gifts or entertainment not reasonable in the circumstances would create a violation of the integrity and objectivity rule. |
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Term
Members in Business
Integrity and Objectivity
Preparing and Reporting Information—Members in business must never: |
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Definition
- Make or direct another to make a false entry
- Fail to correct inaccurate financial statements or entries; or
- Sign or permit another to sign a document containing materially false information.
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Term
Members in Business
Integrity and Objectivity
Subordination of Judgment— |
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Definition
| The rules against subordination of judgment for members in business are essentially identical for those of members in public practice that are contained in Part 1 of the Code of Professional Conduct. |
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Term
Members in Business
Integrity and Objectivity
Obligation of a Member to His or Her Employer's External Accountant— |
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Definition
| Members in business are to “be candid and not knowingly misrepresent facts or knowingly fail to disclose material facts to their employers” external auditor. |
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Term
Members in Business
Integrity and Objectivity
Educational Services— |
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Definition
| When teaching at a university or performing other educational services, a member in business is viewed as performing professional services and therefore must act with integrity and objectivity. |
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Term
Members in Business
General Standards
Like members in public practice, members in business must: |
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Definition
- Act with professional competence
- Exercise due professional care
- Adequately plan and supervise performance of professional services
- Have sufficient relevant data to back up any conclusions or recommendations they make
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Term
Members in Business
General Standards
Members in business are expected to: |
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Definition
- Comply with applicable standards promulgated by bodies like the Securities and Exchange Commission and Internal Revenue Service
- Not imply that financial statements they are preparing and submitting to third parties were prepared in accordance with independence rules when they were not
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Term
Members in Business
Accounting Principles
Like members in public practice, members in business may not : |
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Definition
| claim that financial statements are presented in accordance with generally accepted accounting principles when they are not. |
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Term
Members in Business
Acts Discreditable—Members in business are held to essentially the same standards as members in public practice when it comes to defining discreditable acts, which include:
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Definition
- Discrimination and harassment in employment
- Solicitation or disclosure of CPA Exam questions and answers
- Failure to file a tax return or pay a tax liability
- Negligence in preparing financial statement or other records
- Failure to follow the rules for preparation of financial statements required by agencies like the Securities and Exchange Commission, Federal Communications Commission, and state commissioners
- Entering into prohibited indemnification agreements and limited liability provisions
- Disclosing confidential information without the employer's permission or the application of another recognized exception (such as validly issued subpoena, etc.)
- Promoting or marketing their firm by use of false, misleading, or deceptive ads
- Improper (misleading) use of the CPA credential
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Term
Other Members
Other members are, by definition: |
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Definition
| unemployed, retired, or otherwise not working in the profession, so most of the code that applies to members in public practice and members in business does not apply to them. |
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Term
Other Members
Discreditable Acts—Other members are, at a minimum, not to engage in discreditable acts, including: |
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Definition
- Discrimination and harassment in employment practices
- Solicitation or disclosure of CPA Examination questions and answers
- Failure to file a tax return or pay a tax liability
- Improper disclosure of confidential information obtained from former employment or previous volunteer work
- False, misleading, or deceptive acts in promoting or marketing services
- Improper (misleading) use of the CPA credential
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Term
| Which of the following is not true regarding application of the Conceptual Framework for members in business? |
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Definition
A familiarity threat arises when a member in business has a long association with an employer.
This is not true—this is a problem for members in public practice who may not be able to be adequate watchdogs of attest clients if they become too familiar with them. But no compliance threat arises for a member in business who works for an employer for a long time. |
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